Price/Book (P/B) – The smaller the numerical ratio the better (less than 1 is undervalued)
Market/Book Ratio is another name this ratio is also known as.
This is one of the Valuation Ratios which lets you know if a stock is a good bargain buy. It helps answer the question “Is the company stock undervalued or overvalued?” Be careful to use other performance metrics along with any valuation ratio since a company may be undervalued due to poor performance.
Calculate this ratio using the below equation. Values in the equation can be acquired from the Balance Sheet and Daily stock price reported.
Equation:
P/B = (Market Price per Share) ÷ (Book Value per Share)
Where: Book Value of a Company = (Total Assets – Total Liabilities)
Notice – Book Value per Share is the Dollar/Share received if a company liquidates.
NOTE-1: There could be a bad reason for a good P/B ratio. For example: when the Book Value is overstated beyond reality, or when the Price per Share is low due to poor earnings.